IIA Urges More Progress in Internal Control Reporting

In preparation for a meeting on April 4, 2002 with the board of directors of the New York Stock Exchange, the Institute of Internal Auditors (IIA) conducted a lightning-fast Internet survey of its members to determine the norms for public reporting on internal controls. The survey was rolled out, completed and compiled in just two days thanks to Internet technology. The results showed progress in internal control reporting, but the IIA thinks more progress is needed to strengthen corporate accountability and enhance corporate governance.

The Norms

The companies represented in the survey consisted of publicly traded companies (58%), privately-owned companies (13%), not for profit organizations (13%) and governmental or other entities (15%). The norms:

40% include a report on internal control in their annual report.

Of the 40% who publicly report on internal controls, the vast majority (89%) report on financial accounting controls, a smaller majority (66%) report on the reliability and integrity of both financial and operational information, and about half (49%) report on compliance with laws, regulations and policies.

The reports are signed by directors, senior management, and/or external auditors. Board chairmen sign 30%, chief executive officers sign 49%, chief financial officers sign 63%, and the auditors sign 20%. The percentages add up to more than 100% because some reports have more than one signature.

The IIA is urging stock exchanges to pass rules that would require public reporting of internal controls by the boards of directors of all publicly-held companies and in a manner that exceeds the norms of current practice. Most notably, the Institute wants mandated disclosures that go beyond the minimum of accounting controls over financial information and address the subject of internal controls in a broader sense.